E-residency – the way forward for digital nomads?

Large numbers of workers around the world are now self-identified or de facto digital nomads. That is, they work across national boundaries, with clients in multiple countries. Their own geographical location does not affect either what they do, or their client list. Like the big multinational companies, these individuals and small companies trade and operate regardless of national borders.

But also like the big multinationals, digital nomads need a home country. This doesn’t necessarily mean their geographical home, but the country in which their business is registered and based.

The rise of e-residency

For many people, particularly sole traders, their geographical location and their business home will be the same place. But others are finding benefits in a new initiative launched three years ago by the Estonian government. Rather like the old-time ‘flags of convenience’ for ships, these digital nomads can become e-residents of Estonia.

E-residency is quite different from citizenship. E-residents have no voting rights, and still pay personal taxes in their home state. E-residency, in other words, is not a tax avoidance scheme.

E-residency does, however, allow you to set up and administer a business, sign documents online in a legally-binding way, and open a business bank account (provided a bank will agree to take you on as a customer). And because Estonia is part of the euro-block, it is a way for a business to operate in Euros without being geographically based inside the EU. In the wake of the Brexit vote, that could prove to be an important point.

To set up a business in Estonia is very simple. Estonia has outstanding electronic infrastructure, having invested heavily in it, and also has a constitutional dislike of bureaucracy. It is, therefore, very easy and very quick to set up a business. The country, in fact, holds the world record for speed to set up a business: just 18 minutes from start to finish. This lack of bureaucracy is a big selling point for those entrepreneurs who have already taken advantage of the e-residency programme. It is also very easy to run a business: taxes are linked to bank accounts, and tax returns are outstandingly easy to file.

You need an Estonian address to set up a business, but that can easily be acquired through a support company such as LeapIN. The Estonian e-residency programme actually advises would-be entrepreneurs to consider employing a support company to help them through the process, and to provide the necessary address and mail service. You also need a business bank account, but it is also now possible to apply electronically for a business bank account in Estonia.

There are probably some downsides. For example, a business registered in Estonia, even if run by a national of another state, would be taken to court in Estonia and under Estonian law if necessary. It is doubtful whether many of those registering businesses there are fully familiar with the intricacies of the Estonian legal system. It may also be significantly harder to close a business than to open one. These issues, and others, are worth considering. It is, however, clear that Estonia has identified a gap in the market, and one that many entrepreneurs have enthusiastically embraced.

The future for e-residency

At the moment, the e-residency programme is backed by the Estonian government. It is not certain whether this backing will continue in future, or if future governments will be less enthusiastic. Perhaps the future of the initiative depends on its success in bringing in business. It is, however, clear that the programme offers some advantages to the country, notably more businesses without the need for physical immigration.

E-residency also offers genuine advantages to entrepreneurs who are not confined by national borders, and who want to set up and run a company with minimal bureaucracy. As a number of interested journalists have discovered, there are no other real advantages to e-residency. The programme is focused on attracting businesses, not disgruntled British ‘Remain’ voters looking for a way to continue being part of the EU after Brexit.

Only time will tell whether e-residency takes off as a concept, disappears altogether, or remains a niche issue. But in the first few weeks after the Brexit vote in June 2016, the number of UK citizens applying to become e-residents increased hugely. Brexit, and other euro-sceptic movements around Europe, could prove to be a blessing in disguise for Estonia’s e-residency programme, and the e-residency programme could offer a haven to small and medium-sized British businesses trading in the EU post-Brexit.